Breaking down Obamacare penalties

Oct. 11, 2013

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Written by

Donovan Slack

Gannett Wisconsin Media Washington Bureau

For more information on the health care law and the penalties, the best resource is the federal health care web page, www.healthcare.gov.

Special report

The Affordable Care Act will touch nearly every American. As key parts of the complex law begin to take effect, Gannett Wisconsin Media is examining the most important issues for consumers, in a series called “Health Care Reform & You.” The stories focus on helping you understand what you need to do, how to do it and how to get help. Installments in the series mostly appear on Sundays and Mondays, but we’ll also report on related news developments as they happen. ON THE WEB: For more information about the changes and to read past stories, click on postcrescent.com/healthcarereform.SUNDAY: Find out what Wisconsin employers are doing to respond to the new health care law.MONDAY: What happens if you choose to ignore the new health care law and don’t get health insurance?

CHAT LIVE Join Bret McKitrick, human resources consultant with Associated Financial Services in Green Bay, to discuss the Affordable Care Act and how it affects businesses at 1 p.m. Tuesday. Visit the chat atwww.yoursite.comSubmit your questions about the law on Twitter using the hashtag #WIACA and on Facebook at www.facebook.com/postcrescentor by email to rryman@pressgazettemedia.com.

Public forum in November

The Wisconsin Institute for Public Policy and Service will conduct a two-day seminar on The Federal Insurance Marketplace in Wisconsin on Nov. 7-8 at the University of Wisconsin-Fox Valley, 1478 Midway Road, Menasha. The public forum on the campus is at 7 p.m. Nov. 7 at James W. Perry Hall. National and local leaders will gather to help businesses and consumers navigate the new online marketplace. Key topics include enrollment, retention and new requirements. The public forum is free to attend. For information, go to wipps.org/programs/foxvalleyhealthconference.php

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WASHINGTON — The most visible effect of Obamacare was the opening this month of the online marketplace where Wisconsinites — and people across the country — can buy health insurance.

But the most biting effect won’t be felt until April 15, 2015, when the penalties will be assessed on those who don’t buy insurance.

Americans will be required to provide proof of health insurance with their 2014 tax return or pay a fine to the Internal Revenue Service. Those fines will be 1 percent of annual income or $95 per person — whichever is higher — plus $47.50 per child, up to a maximum of $285 per family.

And the penalties more than double in the years ahead.

By 2016, uninsured taxpayers will have to cut checks to the IRS for 2.5 percent of their annual income or $695 per person, whichever is higher.

“The idea here is to avoid that mid-2015 shock by making sure people know their options and that everyone who needs to enrolls,” said Robert Kraig, executive director of the advocacy group Citizen Action Wisconsin, which is promoting enrollment across the state.

If taxpayers don’t have the money to pay when they file their returns, the IRS will take it out of any tax refunds they are due. The law has a catch — while the penalties will be added to tax bills, the IRS cannot place liens on assets or seize wages in order to collect.

Wisconsinites can apply for some exemptions.

Penalties won’t be assessed on those who are uninsured for three months or less, are a member of a federally recognized Indian tribe, participate in a heath care sharing ministry — a type of Christian exchange — or are a member of a recognized sect with religious objections to health insurance, such as the Amish. And if your income is so low that you don’t have to file a tax return, you also don’t need to pay a penalty.

Because of Gov. Scott Walker’s decision not to expand Medicaid, there are also exemptions for those who make between 100 percent and 138 percent of the federal poverty level — between $11,490 and $15,850 per year for an individual or between $23,550 and $32,500 for a family of four. That’s because states that expanded Medicaid covered people in that bracket and so, for fairness’s sake, federal officials decided not to penalize Wisconsinites.

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The goal is to motivate as many people as possible to obtain health insurance, either from their employer, through the new health marketplace, or existing government programs like Medicare, Medicaid and BadgerCare.

In Wisconsin, roughly 555,000 people were uninsured before the law took effect, according to the nonpartisan Kaiser Family Foundation. The expectation is that 277,000 of them will get coverage under the law.

That still leaves a significant number uninsured. And no doubt some of those may choose to pay penalties rather than insurance premiums because they are cheaper.

For example, a single, 27-year-old man working two, 25-hour-per-week jobs at $12 an hour would have income of $31,200 per year. He would be forced to buy insurance on the exchange because he doesn’t work enough hours at either job to qualify for insurance through his employers.

According to the rates released this month, he would have to pay at least $1,817 a year for basic health insurance, while his penalty would be a fraction of that. In 2014, it would be $312, though by 2016, it would be $780.

The hope, analysts say, is that by 2016, such an individual would not want to pay several hundred dollars and have nothing to show for it. Surveys have shown that people want to be insured — they don’t want to run the risk of huge medical bills that they can’t pay. Still, analysts predict some will choose to pay penalties rather than premiums.

A recent Gallup survey found that 25 percent of currently uninsured Americans plan to pay the fine rather than buy insurance. Nationwide, that’s 11.7 million people. In Wisconsin, it’s roughly 150,000.

Kraig of Citizen Action Wisconsin said he hopes that the actual number will be much lower.

“You have some talk of people saying, ‘Well, gee, the penalty’s less than the insurance,’ but then, of course, you’re not covered. So that’s the difference,” he said. “And of course if you have any major medical encounter, either an accident or a sudden illness, then you are probably going to be bankrupt ... with medical bills.”

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If too many people decide to flout the insurance mandate and pay the penalties instead, rates will go up for everyone else. That could undermine the foundation of health care reform because its premise was to sign up lots of healthy people who are currently uninsured, particularly young people. That way, the insurance companies could offer much better, affordable coverage to all, including those with pre-existing conditions without a lifetime ceiling on medical benefits.

“Obviously, these marketplaces will work better if you get young, healthy adults to participate in the sense that they will help keep premiums lower than they would otherwise be,” said Jennifer Tolbert, director of state health reform at the Kaiser Family Foundation and an associate director for the Foundation’s commission on Medicaid and the uninsured.

The challenge is to convince young adults that they should help bear the burden of other people’s health care, a concept reflected in the technical name for the penalties, “shared responsibility payments.”

Aaron Smith, co-founder and executive director of Young Invincible, said he believes the outcome will depend on actual costs.

“It’s one thing if it’s 200 bucks a month, it’s another if it’s 40 bucks a month — maybe it becomes something that becomes more practical when it’s lower cost,” said Smith, whose group is trying to educate young people across the nation about their options. “Honestly, that’s the biggest thing that we are talking about. Because I think it’s great that Lady Gaga and other celebrities are talking about this and supporting it. That’s important.

“But I also think we just need to be straightforward with people and say, ‘this is how much it’s going to cost and this is what your options are,” he said. “And for the vast majority of young people this is going to be a really good deal, it’s going to be affordable.”

There is one group that won’t have to worry about potential penalties on tax day 2015: businesses.

The Obama administration granted them a one-year reprieve, delaying their penalties by a year. But those penalties will kick in eventually. When they do, employers with at least 50 full-time workers that don’t provide minimum levels of affordable coverage will have to pay.

Those penalties, also payable to the IRS, are $2,000 per employee if you don’t offer insurance, and $3,000 per employee if the insurance you offer doesn’t meet minimum coverage levels. And unlike the contributions a company would make to employee health insurance premiums, the Obamacare penalties are not tax deductible.